Project a Has an NPV of $20,000 and a PI

question 82

Multiple Choice

Project A has an NPV of $20,000 and a PI of 1.2.Project B has an NPV of $10,000 and a PI of 1.3.Both projects have equal lives.Which project should be preferred if we are NOT concerned with capital rationing (that is,we are NOT concerned with being short of funds) ?

• A)We should prefer Project B since it has a higher PI.
• B)We should compute the EAA before we make any decision.
• C)We should prefer Project A since it has a higher NPV.
• D)We should prefer Project B if it has a higher IRR.

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Definitions:

WACC

Weighted Average Cost of Capital; a method for assessing a firm's capital costs by applying proportional weights to each kind of capital.

Credit Rating

An evaluation of the creditworthiness of an individual or corporation, often expressed as a grade or score, that reflects the likelihood of the entity defaulting on its debts.